Category: Federal Retirement NEWS

Federal Retirement NEWS

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Can Working During Retirement Hamper Your Social Security Benefits?

It’s often said that retirement is not a destination, it’s a journey. Some retirees find the journey includes a return to part-time work. A few of the common reasons for reentering the workplace include a lack of retirement savings, pursuing a second career, rising health insurance costs or even boredom. For many retirees, simply having a job that they enjoy is a good reason to get up in the morning. Let’s also not underestimate the impact that boredom can have on your mental and physical health. In fact, the healthier you are, the less you are likely to spend on health care costs during retirement. If you are planning to work during retirement, even if only part-time, here’s how this decision could impact your Social Security benefit and taxes situation.

social security

Does it Make Sense to Work and Collect Social Security?

The simple answer is that it depends on your age. Determining, however, if it makes financial sense for you to work and collect Social Security at the same time is a more complicated assessment. It depends on how much you earn and when you begin taking Social Security benefit. While it can seem tempting to take your Social Security benefit as soon as you’re eligible at age 62, it can be a costly decision. Starting Social Security at age 62 can mean a 25% reduction in your monthly benefit versus waiting until what the government considers your “full retirement age” or FRA. Furthermore, recent changes to Social Security mean that age 65 is no longer the milestone for FRA. Depending upon the month and year in which you were born, FRA now ranges from age 66 to 67.

A Paycheck Can Affect your Social Security Check

Aaron Steele, a financial planner with Steele Capital Management in Olympia, Wash. points out that if you’re counting on a certain level of Social Security income to supplement your part-time job, it’s important to be aware of how your paycheck can affect your benefit check. There is a limit to how much you can earn and still receive your full Social Security benefit if you are younger than your FRA. The income limit is scheduled to increase each year, but for 2017 you can earn up to $16,920 ($1,410 per month). For every $2 you earn over the $16,920 limit (in 2017) Social Security deducts $1 from your benefit.

“Social Security will only allow you to earn $16,920 this year (2017) before you start seeing your benefit check reduced by a $1 for every $2 you earn at work,” says Steele. “For my clients that have returned to part-time work post-retirement, I work closely with them to incorporate Social Security planning into their overall financial plan. Ongoing monitoring of their financial situation helps ensure that they don’t encounter an income shortfall by losing benefit dollars to withholding.”

In the short-term, this reduction can appear to be significant for those that claim their Social Security benefit before FRA and continue to work.  The good news is that if Social Security does withhold a portion of your benefit, some of those dollars will be returned to you by way of a higher monthly benefit once you reach FRA. Additionally, if your most recent year of earnings turns out to be one of your highest income years, Social Security will recalculate your benefit based on the higher earnings.

If you reach your FRA in 2017 and will celebrate your birthday in the fall or winter then you need to plan carefully. Between January and the month of your birthday, you can earn up to $44,880 (in 2017) without any benefit withholding. If you earn more than $44,880 (in 2017), Social Security will deduct $1 for every $3 you earn over the limit. Once your birthday passes, the income limit no longer applies.

In determining your earnings, Social Security will include not only your wages but also commissions, bonuses and vacation pay. Income from annuities, pensions, interest, IRAs, investment earnings, federal employee or civil service retirement benefits and capital gains are not included in the calculation.  The Social Security Administration provides an Estimated Retirement Calculator on their website that can help you estimate how your earnings could affect your benefit.

Taxes and the Good Old Days

The first person that uttered the words “the good old days are gone” must have been referring to a time when Social Security was completely tax-free income for every recipient. It still holds true that your Social Security benefit won’t be subject to income tax if that’s the only income you receive during the year. However, if you have income from other sources such as a part-time job or a retirement plan such as a Thrift Savings Plan (TSP), 401(k) or pension then a portion of your benefit may become taxable. The worksheet contained in IRS Publication 915 is a good starting point to determine if a portion of your Social Security benefit is subject to income taxes.  For more complex tax situations you may benefit from consulting a qualified tax professional.

In addition to the federal government potentially taxing a portion of your Social Security, 13 states also tax benefits. As of the date of this publication, Connecticut, Colorado, Kansas, Nebraska, New Mexico, Minnesota, Missouri, Rhode Island, Utah, Vermont, Montana, North Dakota and West Virginia all have the potential to tax a portion of benefits for its residents. Many of these states only tax a very small percentage of the population due to rather generous income exemptions. However, four of the states follow the federal government schedule of no exemptions. These states are Minnesota, North Dakota, Vermont and West Virginia. Based on the potential bite that taxes can take out of your Social Security benefit, it’s easy to see that where you retire matters.

Conclusion

Throughout your working years, you have probably viewed your retirement as a destination. The professionals at Public Sector Retirement, LLC (PSR) want to change your perception to one that retirement is simply a milestone on your journey. Your life will continue to evolve and that may include a return to the workplace. If your vision of retirement potentially includes working part-time, it’s important to carefully plan when to begin your Social Security   If you are planning to work during retirement, even if only part-time, here’s how this decision could impact your Social Security benefit and taxes situation.  It is quite clear that when you choose the best date to retire, you should also think of whether you plan to work in retirement because if you do, you may need to pay heavy taxes on retirement benefits savings or you may get less social security benefits than you expected.

Trump’s Budget Targets a Reduction in Federal Retirement Benefits

The 2018 fiscal budget proposed by the Trump Administration, titled “The New Foundation for American Greatness,” is seeking a major reduction in federal retirement benefits. The proposed changes could decrease an employee’s take-home pay with higher annuity contributions. The plan also calls to eradicate cost-of-living adjustments (COLA) for current and future Federal Employee Retirement System (FERS) retirees.

While many federal employee union groups have vowed to fight to the proposed changes, Public Sector Retirement Specialists are still concerned by the possible elimination of COLA and increasing employee contributions. The combination of these two proposals has the potential to greatly impact when employees are financially ready to retire.

retirement benefits

Charging More and Providing Less in Return

If approved, over the next 10 years the reduction in federal retirement benefits would save the government approximately $3.6 trillion. Changes to federal benefit plans alone could save more than $4.1 billion in 2018 and an estimated $149 billion by the year 2028. The Trump plan would, however, result in federal employees being required to contribute far more of their income towards their federal retirement benefits while reducing the benefit that the employee receives during retirement.

The budget proposes an increase in employee contributions to FERS by 1 percentage each year until they match the government’s contribution. On average, this increase would take six years to accomplish and result in an overall out-of-paycheck increase of approximately 6 percent. Federal employees hired after 2013 would realize the smallest increase as they are already required to contribute more than those hired prior to 2013.  Additionally, this increase would only apply under FERS as Civil Service Retirement System (CSRS) employees are already seen as contributing a share equal to the government match.  It’s important to note, however, that most Financial Planners will recommend a retirement savings rate of at least 10 percent in order to prevent an income shortfall during retirement.

Another key change would completely dissolve the inflation-protection that both current and future FERS retirees receive. Starting at age 62 FERS retirees now receive a cost-of-living adjustment (COLA) if the Consumer Price Index (CPI) is 2 percent. If the CPI is between 2 and 3 percent, a 2 percent COLA is applied. Should the CPI climb above 3 percent, they receive the CPI increase minus 1 percent. A reduction of 0.5 percentage points off the COLA for CSRS retirees is also indicated. The proposed plan will alter how many federal and civil service employees envision spending their retirement years and result in difficult budgeting decisions as the purchasing power of their federal annuity decreases.

The Good News

For nearly 2 million civilian federal employees there is a reason to applaud the proposed budget. The plan includes a 1.9 percent pay raise in 2018 for civil servants. Although this figure is slightly less than the 2.1 percent raise that employees received this year, it’s still more than the 1.6 percent increase Obama had proposed. The proposed budget also includes the introduction of a six-week paid parental leave program that would be extended to both new mothers and fathers, as well as adoptive parents. As many are aware, the President’s daughter, Ivanka Trump, has been a vocal advocate for paid parental leave and likely heavily influenced the proposed child care plan.

An Uphill Battle

The proposed reductions to FERS benefits have been met with fierce opposition from Democrats and union leaders alike. Some have dismissed the cuts as nothing more than punishment for those who have contributed to their country through federal service. Even those that supported President Trump for office now believe that he has broken his campaign promise to protect the retirement benefits of government employees.

The Trump administration has defended the proposed reductions in FERS benefits as being in line with the president’s goal to rein in federal government spending and to bring federal retirement benefits more in line with the private sector.

It’s Just a Proposal

While the White House has requested the changes take effect as of the fiscal year 2018, which begins October 1st, it’s important to remember that the president’s budget proposal is just that, a proposal. The budget is still in congressional appropriations committee review, and ultimately Congress controls what bills it sends for the president’s signature. If nothing else, the proposed budget should be viewed as a statement of the Trump administration’s priorities. Furthermore, similar federal retirement benefit cuts have been proposed by past administrations, most have died or been drastically altered by Congress. The potential for a reduction in federal retirement benefits should, however, urge federal employees to begin saving more than the 5 percent Thrift Savings Plan (TSP) agency match and likely plan on working until age 62 or later.

 

 

Medicare Begins Replacing Social Security Numbers on Medicare ID Cards

Identity theft is an ever-increasing concern, especially for seniors. An easily lost or misplaced source of personal information that can have a devastating impact on your credit is your Medicare card. This one card carries a vital piece of personal information that can be used to steal your tax refund or even open credit lines in your name. That piece of information is your full Social Security number (SSN).

Medicare
Medicare Replaces Social Security Numbers with ID numbers

Currently, Medicare cards reflect your health insurance claim number (HICN) which is the same as your SSN. While the Social Security Administration (SSA) warns Americans to not carry their Social Security card with them, Medicare instructs beneficiaries to carry their card at all times.

Change is rapidly approaching as Medicare prepares to issue new Medicare ID cards without SSNs in order to comply with the Medicare Access and CHIP Reauthorization Act of 2015. By April 2019, all Medicare recipients should receive a new card that reflects a Medicare Beneficiary Identifier (MBI) number that will be used for billing, eligibility verifications and claim status.

Timeline for Replacement

Officials have recently stated that the replacement of Medicare ID cards is on track and it will be able to meet the 2019 deadline. While a final prototype of the new card has not been revealed to the public yet. It is believed that the MBI will have 11 characters which will have a combination of randomly generated upper-case letters and numbers. In April of 2018, the agency plans to start mailing the new cards to all current Medicare beneficiaries. Beneficiaries will be instructed to safely and securely destroy their current Medicare cards and keep the new MBI confidential.

It’s Not the First Complicated Health Care Transition

Though changing the numbers on Medicare ID cards presents a few challenges, it’s not the first of its kind. Much has been learned from the massive launch of “Obamacare” and the Medicare drug program rollout, neither of which were without difficulty. Many people will remember that the Healthcare Marketplace computer systems were plagued with issues when they first launched to the public. You may also recall that millions of low-income Medicare drug program beneficiaries were not able to get their prescriptions filled initially.

Aim of a Seamless Transition

The replacement of SSNs with a randomly generated MBI extends far beyond the nearly 57 million elderly and disabled Medicare beneficiaries. It also requires that the health care provider community prepares their systems for the change. However, many providers were dedicated to the Social Security Removal Initiative (SSNRI) long before legislation mandating the removal was signed into law. Many are already prepared for a seamless transition to the MBI number system.

In a statement made recently, Seema Verma who serves as Medicare Chief stated that the Trump administration is aiming for a seamless transition over a 21-month period which will involve coordination with hospitals, doctors, beneficiaries, family members, state government, insurance companies and pharmacies.

Conclusion

While long overdue, the removal of Social Security numbers from Medicare cards should help lessen the chances of identity fraud for Medicare beneficiaries. In the meantime, Medicare Beneficiaries are still at risk for identity theft so it’s important to carry your card safely and be vigilant about who has access to this important piece of personal identification.

EPA Offering Buyouts to Reduce Personnel

It seems that many agencies are accepting president Trump’s idea of reducing the number of federal employees and the EPA Offering Buyouts is proof positive that Trump’s vision of a smaller government is becoming a reality. The Environmental Protection Agency has recently initiated steps to buy out certain personnel. The EPA has decided not to hire more workers unless it becomes necessary. It is believed that the agency may offer voluntary retirement as well. The impact of these changes on retirement benefits and federal retirement can just be guessed right now because no one knows the exact impact.

EPA Offering Buyouts
The EPA has begun offering buyouts to reduce the number of Agency employees

How the EPA Offering Buyouts Will Impact the Agency

The EPA has begun offering buyouts to reduce the number of federal employees in the Agency. The Agency has about 15,000 employees at the moment. This decision was probably taken because of an executive order by President Trump that was released last month and talked about streamlining agencies through the federal government.

How was the Message of Reducing Federal Employees at EPA Conveyed?

The message of reducing federal employees was conveyed via a letter sent by the Acting Deputy Director of EPA, Mike Flynn. This letter was sent to all the regional administrators. The content of this letter stated that the White House had asked federal government agencies to start taking immediate actions that are aimed at reducing the workforce.

The letter further stated that as per the said guidance, the EPA offering buyouts to start an early buyout or early out program. Flynn also mentioned that the goal was to complete the program by the end of the year.

No Hiring

Flynn also mentioned that though the governmentwide hiring freeze has been lifted, new recruitments at the EPA will not be encouraged. The resource situation of the agency is such that it has to opt to stay away from external hiring.  This hiring freeze is not aimed at restricting recruitment for all the positions as there can be limited exceptions that are permitted on a case-by-case basis.

Setting of a Trend

Though the memo has minimal details about the agency’s plan to reduce the number of federal employees, it can be probably one of the several plans that will be submitted by various agencies.

Targeted Approach

It is also a fact that EPA has been a central target of the Trump administration as the President of the country, Donald Trump had earlier promised that he would reduce the agency to tidbits. The budget he has proposed would slash the funding of the agency by 30 percent and cut around 3200 federal employees. It will also obliterate funding for Superfund cleanups, climate change research and scrap over 50 programs. The efforts being made towards improving the energy efficiency, cleaning up the great lakes and funding infrastructure projects in the Native American communities are among the scrapped plans.

Understanding the Buyout

Those of you who don’t fully understand what the EPA Offering Buyouts will mean to federal employees must know that buyout is also known as a voluntary separation incentive payment. It is a cash payment that is made to a federal worker to tempt him or her to leave voluntarily. The maximum amount of money that can be offered per person is $25,000. This payment is taxable which means that the take-home value is reduced by a few thousand dollars at least.

Federal workers who are selecting this option must leave by a specified date, and they are not allowed to return to federal employment within five years unless they manage to repay the entire pretax buyout amount.

Is Early Retirement Offers on EPA Agenda?

In most cases, the buyouts are coupled with early retirement offers, but in the case of EPA, it is not clear whether they are on the agenda or not. For those of you who don’t know, Voluntary Early Retirement Authority lets federal employees retire before they reach the standard combinations of years of service and age.

The two most vital federal retirement systems are Federal Employees Retirement System and Civil Service Retirement System. The latter applies to people who were hired before 1984 which consists of less than 10 percent of the workforce. These people are now older and closer to retirement on an average.

Early retirement offers allow employees in either of the two systems to retire at any age with 25 years of service or age 50 with 20 years or service. It is potentially subject to a reduction in one’s retirement benefits.

Why are Layoffs Unpopular?

Laying off the federal workers or Reduction in Workforce is not preferred by federal agencies because it requires a tedious, expensive and disruptive process. RIFs have been out of trend as Agencies have not used them for decades and they try to avoid them. Agencies prefer other methods like cutting down the travel and other expenses as well as cutting down the feds via attrition.

Conclusion:

Federal employees have been under the scanner since President Trump took over. The attempts to reduce the number of feds have been initiated at EPA by offering buyouts. The agency may also offer early retirement options which may badly impact retirement benefits and federal retirement.

Less Strict Thrift Savings Plan Rules Encourage Transfers

Thrift Savings Plan or TSP has always been a great tool for increasing federal employee federal retirement benefits. But many people prefer to transfer their funds out of the plan and shift them to other qualified plans or IRAs. But a new legislation has been introduced recently that could encourage federal employees to keep their savings in TSP.

thrift savings plan tsp

Details of Legislation Suggest Lawmakers Believe Current Thrift Savings Plan Rules Encourage Transfers

U.S. Sen. Rob Portman (R-OH) believes the current TSP platform encourages Thrift Savings Plan participants to transfer their retirement savings.  The recent legislation he proposed is aimed at stopping feds from transferring the savings to other retirement benefits accounts.

How Much Money is Shifted from Thrift Savings Plan or TSP Every Year?

If one needs to know how much money is shifted from Thrift Savings Plan or TSP every year, you should know that about $9 billion is transferred from TSP retirement account each year.  The TSP is, what is called, a defined-contribution plan, similar to 401(k) plans offered in the private sector.  Federal employees can access similar retirement benefits by rolling over their TSP funds into a 401(k) of a future employer or an IRA when they retire or as they reach TSP minimum age requirements for an in-service distribution.

Why Easing of Thrift Savings Plan or TSP Rules is Necessary?

Senator Portman believes there is a need to ease the Thrift Savings Plan or TSP rules as a recent survey revealed that the strict withdrawal rules of Thrift Savings Plan or TSP are the main reason why federal employees are switching to outside retirement accounts.  This transfer happens despite the TSP having relatively low fees.

The TSP Modernization Act

Portman’s legislation, the TSP Modernization Act will change the current rules which restrict employees separating from the federal workforce to only two post-separation withdrawals. It would let multiple post-separation withdrawals so that the feds can meet individual needs over time.

While introducing the bill, Portman stated that TSP had played an instrumental role in assisting federal employees to maximize their retirement security and to mark the 30th anniversary of this vital savings vehicle, this bills takes several important steps to modernize the system so that it continues to benefit them in the future as well. He also urged his Senate colleagues to support the bipartisan legislation.

The Benefits

There are multiple benefits of the bill. Primarily, the bill would allow multiple Age-based withdrawals for the current federal employees who are older than 59.5. Secondly, it would encourage TSP plan participation by allowing quarterly or annual payments. It will also permit periodic withdrawals that can be changed anytime during a year.

Supporters’ Speak

U.S. Sen. Tom Carper (D-RI) was the one who introduced the TSP Modernization Act along with Portman. He also mentioned the benefits offered by the bill. He said that making smart choices to prepare for retirement can be a difficult task, but every person deserves to have the financial stability when their career is at an end.

Carper also stated that Thrift Savings Plan or TSP is a useful tool and the hardworking federal employees depend on it while they plan their futures. But there is a need to make it work better for the users. He was pleased to have worked with Senator Portman on a bipartisan effort with an aim to do just that.

Greg Long who serves as the Executive Director of the Federal Retirement Thrift Investment Board also shared his views on the matter by stating that the efforts of Senators Portman and Carper are appreciative. He added that the enactment of said legislation would improve the ability of TSP participants to access their retirement savings in a responsible manner.

Conclusion

It is quite evident that the legislation that plans to ease the Thrift Savings Plan or TSP rules would make things easier for the federal employees who find it hard to withdraw their federal retirement benefits swiftly and are forced to switch to other and more expensive retirement benefits accounts.

Federal Employee Benefits in Government Shutdown?

Lawmakers are on the brink of deciding whether they would approve a spending measure to avert a government shutdown or let it happen. If the shutdown does take place, federal employees’ benefits would take a hit. Apart from the retirement benefits, all other income sources may get restricted or even stopped for a particular timeframe. Here we try to explain what will happen to which federal employee benefits if the government shuts down so that the federal employees and retirees can do their financial planning for upcoming months in advance.

 

federal employee benefits during government shutdown
What will happen to federal employee benefits during a government shutdown?

How Federal Employee Benefits Are Impacted in a Government Shutdown?

Before we talk about the impact of government shutdown on federal employees’ benefits, let’s have a look at the current situation. The lawmakers must approve a spending measure because if they don’t, the government shutdown will begin on April 29, 2017. It is not clear whether the White House and Congress can come to an agreement on a continuing resolution to fund the government in a timely manner or if the lawmakers would allow appropriations to lapse.

Impact on Federal Employees’ Benefits

What is the impact on Federal Employee Benefits during a government shutdown?

Salaries of Federal Employees: Employees who are deemed essential or are exempt from the shutdown need to be paid by the agencies but the money won’t arrive until the government reopens. There is no guarantee that Furloughed employees will get compensated when the shutdown ends. But Congress has traditionally issued back pay. Sen. Ben Cardin, D-Md. has already introduced a legislation to make sure that all the federal employees are paid swiftly if the agencies close or Congress misses the deadline.

Bonus Situation: Though agencies can offer performance bonuses, they would not be paid until the government is reopened.

Unemployment: Furloughed employees that are eligible for unemployment compensation in some states may get it but they may need to return the money when Congress approves their back pay (it happened in 2013)

Healthcare: Federal workers will be covered by Federal Employee Health Benefits Program even if a shutdown takes place. Premiums will accrue during the shutdown period and will be deducted when the employees get a paycheck post the shutdown. When the government is closed, feds won’t be able to cancel the coverage. In cases of Federal Employees Dental and Vision Insurance Programs, if employees get furloughed for two successive pay periods, they will be billed through an email in order to maintain coverage.

Retirement Benefits: Retirees in the Federal Employees Retirement System and Civil Service Retirement System will get the deserved retirement benefits even if the government closes. People who are enrolled in the Thrift Savings Plan will not be able to contribute to the relevant accounts until the pay resumes post-shutdown.

Leaves: If the government closes down, the workers won’t be able to use paid leaves in place of unpaid furloughs. Even sick days or scheduled leave could be canceled.

Conclusion:

It is hoped that the aforementioned information would help federal employees with their financial planning. We also hope that federal employees’ benefits like the retirement benefits continue despite a government shutdown as it will help retirees to not be badly impacted by the situation.

What To Do With Your Qualified Plan (TSP)

Some of the Qualified Plans that offered to retirement savers force you to do the distribution if it is below the certain limit when you leave service.  These same Qualified Plans may offer you the chance to cash out the balance, but distributions will be taxed in most cases and possibly subjected to the 10% IRS penalty for early withdrawal. This is not the best option to consider.  If you decide to go ahead with the next employer, then there can be multiple choices to make with your old 401(K).

qualified plan
The Thrift Savings Plan is considered a qualified plan and has similar rules to private-market 401(k)s

The key questions to consider for your old retirement qualified plan (Should You Rollover To an IRA?)

Want to stay or go?

Conducting the rollover to another Qualified Plan may be the best thing to do. On the other hand, some Qualified Plans are not entitled to deliver the withdrawals funds like nongovernmental 457 investment plans. Keeping the records of these funds for directing the balance to your best investments plans may be something that you become responsible for, vs. asking your employers to do all the work for you.

Expenses to consider in your Qualified Plan

According to recently released data over the last two to three decades, the overall costs for the qualified plans have decreased consistently.  With additional fee disclosure requirements along with more competition, participants in these qualified plans have been able to secure access to retirement vehicles with a smaller overall cost than what may have been charged to them.  Apart from that, qualified plans like the Thrift savings plan (TSP), are available with the help of federal government employment matching certain employee contributions.

Qualified Plan Investment Options

Given the wide variety of qualified plan investment options that could exist, many plan sponsors offer “Target Date” funds by default. Along with this, your employer is likely to give you access to US large company related stock fund, US small company related stock fund, all in one fund, international stock fund and short-term bond in the minimum choices of a client’s retirement plan. The thrift savings plan withdrawals options provide you the ability to take advantage of the various funds within the TSP while also offering you the ability to roll over your TSP to another qualified plan or an IRA.

Distribution options

Most of the qualified plans today permit the distributions options for you starting in the year you turn age 59.5 years old, matching distribution options of IRAs. IRA’s are also complicated in its details or required substantially equal periodic payments. For early retirees, the odd duck 457 retirement plans can be a great source of funds that may permit distributions before the age of 55.

Leaving your retirement plan

If you decide to leave your retirement plan of old scenario after considering the above factors, then one such easy choice that you can choose by being a rollover could be to consider the retirement plan of the new employer. Apart from that, another option is to consider the traditional IRA approach and other tsp considerations that can deliver the best retirement plan for your unique circumstances.

 

Count On The Thrift Savings Plan For Your Future

The Federal Employee retirement system designed a retirement savings plan known as Thrift Savings Plan or the TSP. The TSP is available to all current as well as retired federal employees who were engaged in the federal civil service. The TSP is a defined contribution plan that has been designed to give same retirement savings to federal employees as are offered to private sector workers who enjoy the benefits of a 401(k). Federal Employees are eligible to make contributions through paycheck deductions, employer matching and rollovers from an existing defined contribution plan or eligible IRA.

thrift savings plan tsp

  • Eligibility for the TSP:-

Thrift Savings Plan involves the participation of the federal civilian employees and members of the uniformed services. To become eligible to receive matching contributions, uniformed service federal employees need to agree to serve on active duty for at least six years.

  • Benefits of the TSP:-

One of the primary benefits of the TSP is how contributions to the TSP are taxed.  Contributions to the Traditional TSP (Roth TSP contributions are handled differently) are made “before tax.” This helps in reducing your reportable income by the amount of the contribution that you make.  An additional benefit of the tax deferral is that earnings are also not taxed in the year they were created, but rather postponed until the employee begins to withdrawal the money. They are meant for allowing compound interest on the earnings.

According to the Thrift savings plan distribution rules, the tax bite is deferred until you start withdrawing funds from the plan. As per the TSP considerations, the federal employees are seen to transfer an approximate amount of $ 9 billion from the retirement accounts each year. These are regarded as defined contribution plans that offer access to the similar kinds of retirement benefits to the federal employees as the private sector employees receive along 401 (k) plans.

  • How TSP works with FERS:-

Among the civilian participants, the Federal Employee Retirement System, commonly abbreviated as FERS, employees are entitled to receive employer contributions to their TSP and FERS Annuity.   As an FERS employee, the agency employer makes two different kinds of contributions to the account as a part of the FERS benefits. Just like other defined contribution plans, the employees need to bear investment risks for his account balance as well as the account concerning determining the performance and contributions of the investments with various TSP considerations. To participate in a TSP plan, you will select investments that you believe are best for your situation and that suit your financial profile.

However, the TSP modernization act is altered to change the current rules that have been restricting employees from the federal workforce to avail post-separation withdrawals.

Conclusion –

It all starts with a great plan if you want to set yourself up for a retirement that matches your income needs.  The Thrift Savings Plan can work amazingly well in this context.

Relaxing TSP Withdrawal Rules

Legislation Relaxing TSP Withdrawal Rules, which could impact every federal employees has been proposed.  Bill S.873 under the TSP modernization Act (Senators Rob Portman and Tom Carper) on April 6th has been designed to simplify TSP withdrawals.

Relaxing TSP Withdrawal Rules
Image Credits

The Latest Changes and Relaxing TSP Withdrawal Rules

According to a press release regarding this, Senators Carper and Portman introduced this legislation Relaxing TSP Withdrawal Rules. An article discussing these changes in the Thrift Savings Plan had been published earlier in the TSP investment report of FEDweek. The Thrift Board announced two years ago that it was planning to give some relaxation to federal employees for withdrawing the money by making the restrictions more flexible. Attempting to encourage participants to leave their retirement assets in the TSP upon retirement appears to be the main reason behind this strategy.

New legislation allows multiple Age-based withdrawals

As per the new legislation Thrift Savings Plan participants would be allowed withdrawals on multiple age-based levels.  For employees who have reached age of 59.5 have been eligible to carry out only one age-based withdrawal up until now. The second important thing to know about this plan is that it would introduce the chance for separate participants to take multiple partial withdrawals. It will be a better idea in comparison to the current status when it allows only one partial withdrawal.

TSP introduces periodic payment rules

The third item covered under this legislation are changes in periodic payment rules. The legislation has announced monthly or quarterly types of periodic TSP withdrawals / payments. The amount can be changed anytime and participants who would be able to elect a partial withdrawal according to its comfort. Participants who are taking periodic payments would be allowed to stop payment and leave the balance in their account. These rules regarding withdrawal of payment will offer much relaxation to participants in comparison to the current ones under which they could only do periodic payment on the monthly basis; they had only one chance annually to change the amount of payment; they couldn’t stop paying until the withdrawal of the full amount of the plan.

Participants and IRA Rollovers

Participants may be happy to find out that they will be able to be more selective in their decisions regarding IRA rollovers.  All these changes in TSP seem beneficial to participants with additional questions arising from the introduction of new legislation. The first thing to be taken into consideration is whether the thrift savings plan is currently capable of handling and managing the expected additional transactions. Secondly, the increase in the expense of a plan has been estimated to be noteworthy. The larger number or withdrawal request will almost certainly add to the management expense of the TSP as a whole, which has been a major advantage of the plan.  Would TSP be able to tolerate the increase in the number of transactions? Thirdly, the financial services sector may choose to fight this legislation as it may reduce the number of IRA rollovers from the TSP.

Conclusion – The amended legislation relaxing TSP withdrawal rules appears to be good news for participants of the plan.  The reality about these changes is yet to come, however, and added costs could be the final outcome.

Social Security Funds To Invest In Equities?

The recent article in the Wall Street Journal suggesting that allowing Social Security funds to invest in equities could increase the investment returns. The article suggested that this move could improve the long-term financial outlook of the Social Security Trust Fund while reducing the need for tax increases.  The risks here are estimated to be negligible if it is done carefully and even if the future returns of the equity are turned out to be lower than the historical ones.

Social Security funds to invest in equities - tsp example
Should the Federal Government allow Social Security funds to invest in equities? Does the TSP’s success demonstrate that this could work?

Also, allowing Social Security funds to invest in equities is unlikely to disrupt the stock market as the simulations suggest that the trust funds will unlikely to hold more than 2 percent of the outstanding market cap at the last stage of the projection period. If the stock accounted for more than 40 percent of the total security assets, then we can say that the % of the trust fund would likely to increase in the stock market by 2 to 3 %. The social security with the thrift savings plan withdrawals options would not take over the stock market.

Does The Thrift Savings Plan’s Success Justify Allowing Social Security Funds To Invest In Equities?

Today the critics of the equity investment suggest that Social Security ownership of publically traded shares would could create a conflict of interest for Congress as the Federal Government would become an owner of these companies and therefore have Voting rights on how the Companies were run. But at the same time, any risk of this kind can be easily avoided. The equity investments in consideration are designed primarily to address the broad market indexes’ such as Wilshire 5000 and S&P 500. Apart from that the voting rights of trust fund shares can be handled in 3 ways: by casting votes reflecting the votes of common shareholders, by no voting at all or at last by delegating the individual portfolio managers. These are the standard practices of the federal government’s Thrift Savings Plan.

Conclusion

The equity investment today is not a silver bullet which can resolve all Social Security issues, but at the same time allowing Social Security funds to invest in equities could t the tsp considerations of yours in your packaged plan for the restoration of balance. The moral of the story is that the policy makers should include some investment assets in their equities as options so that when they implement the thrift savings plan, they will construct the comprehensive packages for the long term run balance restoration. There are many thrift savings withdrawals options are available for you to choose in terms of better investment & beneficial growth for your retirement.

Need for Better Federal Retirement Benefits Boosts Retirement Assets

It seems that Americans finally understand the value of having better federal retirement benefits savings as it would help them to pick the best date to retire and face the realities of retirement. Why? Because the U.S. based retirement assets have increased considerably in the last year. IRA and target date funds were also among the funds that saw an increase recently. Have a look at which assets grew by what number by reading all the data given below.

federal retirement benefits

Need for Having Better Federal Retirement Benefits.

Though the need to have better retirement benefits was a key factor in increasing the U.S. based retirement assets, it’s not the only reason for the increase. A bull market also played a key role in pushing the assets.

The Increase

As per the revelations made by the Investment Company Institute, U.S.-based retirement assets were USD 25.3 trillion in 2016. It saw an increase of 6 percent for the year. At the end of the year 2016, retirement assets accounted for 34 percent of all household financial assets in the country.

Talking about the 401(k) and similar plans, it can be seen that Americans held USD 7 trillion in all the employer-based DC retirement plans. Out of this, about USD 4.8 trillion were held in 401(k) plans. Assets available in individual retirement accounts came to a total of USD 7.9 trillion. It saw an increase of 1.1 percent as compared to the end of the third quarter.

In contrast, their defined benefit counterparts in government including local, state and federal government plans, held about USD 5.5 trillion in assets at the end of December. It saw a 2.4 percent increase from the end of September.

Defined benefit plans of the private sector held approximately USD 2.9 trillion in assets at the end of the fourth quarter of 2016. Annuity reserves that are outside the retirement accounts accounted for another USD 2 trillion.

Assets of Defined Contribution Plans

At the end of the fourth quarter, $550 billion was held in other DC plans of the private sector, $282 billion in 457 and $905 billion in 403b plans. About $467 billion was in the retirement system of federal employees, the thrift savings plan which raised the hope that at least federal employees would now have access to better retirement benefits.

Mutual funds amounted to $3 trillion or consisted of 63 percent of assets that are held in 401(k) plans at the end of December 2016. Equity funds were the most common type of funds held in 401(k) plans as they amounted to USD 1.8 trillion. They were followed by $835 billion in hybrid funds that include the target date funds.

Increase in Target Date Funds

The mutual fund assets of the target date funds were $887 billion. It had increased 1.5 percent in the fourth quarter and 16.3 percent for the year. Not surprisingly, retirement accounts held most of the target date mutual funds assets as 88 percent of the target-date mutual fund’s assets were held through DC plans (67 percent of the total) and IRAs (20 percent of the total) at the end of 2016.

Slight Increase in Individual Retirement Accounts

The growth in IRA assets is just 1.1 percent when compared on a quarterly basis. It held $7.9 trillion in assets at the end of 2016.  47 percent of the IRA assets or $3.7 trillion was invested in mutual funds. $2 trillion was invested in the equity funds.

Conclusion:

People who have decided to choose the best date to retire only after ensuring that they have better federal retirement benefits savings have something to cheer about. The retirement assets of the Americans have improved considerably, and this is great news for all the people planning to retire and face the realities of retirement.

Keep Your Federal Health Insurance In Retirement

Many people worry about losing their Federal Health Insurance In Retirement because they don’t have the resources to pay for all the medical bills on their own. If you are also worried about one of the most crucial federal employee resources, federal employee health benefits or FEHB health insurance, this article will attempt to guide you through your eligibility and options you have if you are ineligible for FEHB.

Federal Health Insurance In Retirement
How to keep your Federal Health Insurance In Retirement

Federal Health Insurance In Retirement and the FEHB Five-Year Rule

If you are currently enrolled in FEHB and have been enrolled in it for at least five years or from the earliest opportunity to enroll, you typically can maintain your federal health insurance in retirement. Your health insurance benefits in retirement will also remain even if you have bounced from one plan to the other. Being enrolled in some FEHB plan for a full five years before the retirement is what matters most, according to the rules.

What happens to health insurance benefits in retirement if you are not enrolled in FEHB for five years?

If you are unable to meet the requirement of being enrolled for five years, you should see if you qualify for a waiver. OPM can grant a pre-approved waiver if you are offered an early retirement offer and you have accepted it. There are still certain conditions that need to be met to be eligible for the waiver. These conditions are different for DoD and non-DoD employees. In case an early retirement offer comes your way, your agency would usually let you know whether you qualify for a pre-approved waiver or not. If the agency has not made it clear, you should ask the agency about it.

Seeking Individual Waiver

People who wish to keep health insurance benefits in retirement but haven’t got a pre-approved waiver can try their luck at getting an individual waiver from OPM. Waivers can be difficult to obtain through OPM as they will only grant you an exemption under limited circumstances.

Free Extension

A person who is not eligible to carry the FEHB coverage into retirement is given a 31-day extension of the coverage without any costs. After that period is over, you need to decide whether you wish to convert to an individual contract or you need to ask for Temporary Continuation of Coverage. In the latter option, you can keep your FEHB enrollment for a maximum of 18 months, but you will need to pay the full premium and an additional two percent to cover all the administrative costs.

Making Decisions

In case you get to enjoy health insurance benefits in retirement when you reach 65 years of age, you will become for Medicare Part A and will need to make some decisions. Firstly, you need to decide whether you need the FEHB coverage at the same level. The decision would usually depend on factors like cost and benefits of the said plan at that time and the extent to which the plan overlaps with Medicare Part A. You need to do some research before reaching any decision.

The second decision would be whether you should enroll in the Medicare part B or medical insurance. In case you are enrolled in a fee-for-service plan at that time, you need to seriously consider enrolling in the Medicare Part B because it will cover almost all of your medical expenses.

If you are enrolled in an HMO at that time, you may choose to opt for enrolling in Medicare part B, because it will cover the costs if you decide to use non-plan providers. Medicare Part B can also lower the premiums for each 12 months if you later move to a fee-for-service plan.

The last problem you need to solve is how much you need to pay for FEHB coverage post-retirement. If you are not a postal worker, you will need to pay the same premiums like you did as an employee.

Conclusion

If you are eligible, maintaining your Federal Employee Health Benefits or FEHB in retirement is an excellent idea.  There are ways to request a waiver if it is determined you are ineligible, and whatever effort you need to put forth to obtain this waiver is advisable, as maintaining your federal Health insurance in retirement (FEHB) is undoubtedly one of the more important components of your retirement well-being.

Is Auto-Enrolment Good for Financial Planning and Wellness of Civilian Employees of the US Army?

It is a general belief that auto-enrolment is a smart idea as it allows people to save more towards the retirement benefits and boosts their financial planning and wellness. But does the boost to financial planning and wellness actually occur? A study sought answers to these questions by analyzing the data of civilian employees of the US Army who have contributed to DC TSP or thrifts savings plan.  The results of the study are not as definitive as one would have expected.

financial planning

Auto Enrolment Expected To Boost Financial Planning and Wellness

Auto-enrolment to defined contributions plans began due to the Pension Protection Act which nudged the employees into DC plans. This step was taken to ensure that there was a boost in financial planning and wellness of the participants of the DC plans.

The Debt Danger

Though it is evident that auto-enrolment was initiated to ensure people benefit from better financial planning and wellness but an unpublished research paper has recently surfaced which states that it may be responsible for driving people deeper into debt. The study showed that an increase in debt payments is offsetting about 73 percent of the gains of low-income participants.

Analysis of Data

The researchers have analyzed savings data of the civilian employees of the US Army who had contributed to federal defined contribution thrift savings plan. Auto-enrolment on the set plan was associated with an increase in the wealth, but new consumer debt counterbalanced more than a third of the average gain.

The authors of the report compared more than 32,000 civilian U.S. Army employees who were hired in the year before the implementation of auto-enrollment change with nearly 27,000 employees employed in the year after. The authors also conducted a study on 2,345 employees who were hired in the month before the implementation and compared it to the 3,414 employees who were hired in the month after the change. It got similar results in both comparisons.

The Results

During a four-year period after the employees were hired, those who were auto-enrolled had an increase in the overall wealth, which increased by 5.2 percent on an average.  Wealth also rose by 13.9 percent at the 25 percentile of the income and 21.5 at the 10th percentile of income, says the study. Main reasons for the increase were employer and employee contributions. The report also mentions that auto-enrollment had no effect on 75th and 90th percentiles.

Lowering the Wealth Increase

A big blow to the financial planning and wellness benefits of auto-enrolment was that automatic enrollment increased net wealth during the same period by an average of just 3.3 percent. It demonstrated a 37 percent crowding effect. It was just 8.6 at 25th percentile which indicates 38 percent crowd out. It was also 5.8 percent at 10th percentile which shows 73 percent crowd out. There was no effect on the net wealth at 90th or 75th percentiles.

The Authors

The authors of the study were John Beshears, David Laibson and Brigitte Madrian of Harvard, William Skimmyhorn of the U.S. Military Academy and James Choi of Yale. Many authors have been studying the behavioral efforts to lift the U.S. savings rates for more than a decade.

Conclusion:

After having a look at the report regarding auto-enrolment and its effects on financial planning and wellness, it can be stated that the increase in wealth is not as high as it was assumed to be initially as debt is playing a key role here. Though auto-enrolment has boosted the retirement benefits savings of people because they are saving up more in DC plans of TSP or thrift savings plan, the boost is not as much as many people expect it to be.

Retirement Assets Reach Over $19 Trillion in 2016

Per recent data shared by the Federal Reserve, retirement assets reach over $19 trillion. This data demonstrates the seriousness that people are approaching their retirement financial planning. Have a look at the numbers and see how the assets are doing when they are classified into various categories.

Retirement Benefits

Retirement Benefits Fund Assets for DB and DC Plan Also Grew

The data shared by Federal Reserve also states that retirement fund assets for Defined Benefit Plan and Defined Contribution Plans (like 401(k)s and the Federal Government’s Thrift Savings Plan) have also grown a lot in the last year. The total assets across the public and private defined contribution (DC) and defined benefit (DB) plans grew by 8 percent. It was $17.6 trillion in 2014, and retirement assets reach over $19 trillion in 2016.

Total financial assets available in private and public DB pension plans were $12.4 billion in 2016. It has increased by 8 percent as it was just 11.5 trillion in 2014. Similarly, the total financial assets in DC plans were $6.7 trillion in 2016. It is up by 10 percent from $6.1 trillion in 2014.

Private DB pension plan assets in 2014 were $3.2 trillion. They were at $3.3 trillion in 2016 which shows an increase of 3 percent. Private DC plan assets in 2014 were $5.2 trillion, and they grew by 9.6 percent in 2016 to stand at $5.7 trillion.

Pension Funds’ Biggest Asset Class Holding

When discussing the performance of retirement benefits fund assets, it is vital to consider pension funds’ largest asset class holding. The largest asset class held by pension funds was corporate equities as it was $4.8 trillion. It is closely followed by debt securities and mutual funds which stand at $3.9 trillion for both of the asset classes. The fourth biggest holding of pension funds in 2016 was Treasury Securities that stood at $2.3 trillion.

Government’s Assets

When reviewing the performance of retirement benefits fund assets, it is essential to see how the assets of the federal government have performed. The DB plan assets of the federal government were $3.4 trillion, and DC plan assets in 2016 were much less than that as they were just $466 billion. DB plan assets of state and local governments were just $5.6 trillion in 2016 while DC plan assets of state and local governments were just $490 billion.

Looking at the Flows

Debt securities were the biggest purchase of private and public DB plans in 2016 as they were around $190 billion, followed by Treasury Securities that were $120 billion and Corporate and Foreign Bonds at $61 billion.

For all the private DC plans, the highest numbers of inflows in 2016 were to mutual funds, at $24 billion. It was followed by debt securities at $22 billion and corporate and foreign bonds at $12 billion.

For the DC plans of federal government, the biggest purchasers in 2016 were debt and treasury securities as both were at $16 billion. They were followed by assets in the Thrift Savings Plan that were about $12 billion.

The biggest purchases of local and state DC plans in 2016 were unallocated insurance contracts at $8 billion and miscellaneous assets at $7 billion.

Conclusion:

The data shared by the Federal Reserve regarding retirement benefits fund assets is a good source of information for investors who wish to understand how these large plans are investing their asset, which may lead to an understanding of how these money managers perceive the economy and the potential investment risks that lie ahead.

Federal Employees With More Than $1 million in Their TSP

More and more Federal Employees are amassing more than $1 million in their TSP or thrift savings plan account.  The reasons vary from the safety of the investment options to government contributions, to good performance. It is believed that if the funds continue to increase and people continue to invest in them steadily, the number of people who have more than $1 million will increase even further.

more than $1,000,000 in their TSP

More and more federal employees are amassing more than $1,000,000 in their TSP

How Many People Have More Than $1 million  in Their TSP?

As per reports, about 10,000 individuals have a thrift savings plan account over $1,000,000. It is also reported that about 1.4 million account holders currently have balances between USD 50,000 and USD 249,000 after an average of 18 plus years with Uncle Sam. It clearly indicates that most people have a lot of time to grow these accounts further.

In mid-December, 35,161 TSP account holders had a balance ranging from USD 750,000 to USD 999,000. The average account holder had been in the government for just more than 28 years which clearly indicates that these people grew their balances by regularly investing in S, C and I funds of thrift savings plan. These are indexes of the Large Cap (C), International Index (I) and Small Cap (S).

Earlier Investors of TSP

It is pertinent to mention that when the thrift savings plan started, the only federal employees who had million dollar accounts were typically well-to-do private sector lawyers who had turned into federal judges. People who joined the government after long and lucrative careers in the private sectors were also among first few of the thrift savings plan investors.

The Reasons Behind Attracting to TSP

Some people might wonder about why smart and rich people opted to switch their retirement savings accounts to the federal TSP. Well, there are a lot of reasons for that, number one being safety. All these reasons are explained below.

The Monitoring

It is a fact that as an investment, TSP is the most monitored Qualified plan available. Participants range from retired and active letter carriers to FBI agents, CIA officers to NASA agents and even the members of the Senate and House.

Unique Treasury-Securities

People also love investing in the thrift savings plan as they get unique treasury-securities, G-fund which is not available to any other retail investors.

Lowest Administrative Fees

Most Americans also like investing in the thrift savings plan because it has some of the lowest administrative fees in the business.

Recent Performance

It is expected that the number of federal employees who have more than $1 million in their TSP will continue to grow in the future as well because thrift savings plan has ended 2016 on a positive note and because of the age of the average employee being in some of their prime savings years.

Conclusion:

It can be concluded that the report which says more federal employees with more than $1 million in their TSP is good news for all the investors.  It clearly indicates that investors who opt for consistent savings efforts can also earn a lot of money over time if they stick to a plan. It is also quite clear that the recent performance of the TSP funds will lure more investors to it in 2017 which will probably increase the number of millionaire investors in the Federal government.

Will Congress Approve Federal Employee Retirement Benefit Increases?

A congressman is attempting to create federal retirement benefit increases. The proposal offers the new calculation using CPI-E vs. CPI-W. Using CPI- U instead of CPI-W is also being proposed. It is not clear whether the Congress would even nod to change the way cost of living adjustments are being calculated. Even experts are hesitant about speculating on which way the wind will sway. If the method of calculation is changed, many people will need the help of someone who serves as a retirement guide.

Retirement Benefit Increases

Request for Change in Calculating Retirement Benefit Increases

The request for making a change in calculating retirement benefit increases was proposed by Congressman John Garamendi (D-Modesto, CA).  Garamendi recently introduced the CPI-E Act of 2017 (H.R. 1251), a bill that would require the Cost of Living Adjustment (COLA) methodology to make use of CPI-E instead of the CPI-W.  CPI-W is currently being used to calculate changes in retiree benefits for Social Security recipients and federal annuities provided under the Federal Employees Retirement System (FERS) and the Civil Service Retirement System (CSRS).

NARFE’s Opinion

Talking about the proposed change in calculating retirement benefit increases, the president of National Active and Retired Federal Employees Association, Richard Thissen stated that the fact that it is already not being done is shocking. The COLAs are based on the costs experienced by clerical workers and urban wage earners rather than the costs experienced by elderly individuals.

Background

It should be mentioned here that the retirees started getting calculating retirement benefits increase or Cost of Living Adjustments (COLAs), in 1975 only. Congress approved the automatic cost-of-living adjustments as part of 1972 Social Security Amendments. At that time only one Consumer Price Index was available, it was CPI-W. Before 1975, the retirement benefits were increased only when the Congress enacted a special legislation.

Experimental Price Index for the Elderly

The Bureau of Labor Statistics has expanded the number of CPIs since the 1970s, and it has created an experimental inflation measure which is known as Experimental Price Index for the Elderly. It is the responsibility of the Bureau of Labor Statistics to produce the Consumer Price Index.

CPI-W, on the other hand, measures the changes in prices for a market basket of services and goods bought by a household where more than half of the income of the household must come from wage or clerical occupations. The CPI-W population represents about 28 percent of the total U.S. population.

Present Scenario

At present, the experimental CPI-E is calculated by using the households that include at least one reference person or spouse who is at least 62 years of age. It represents about 19 percent of the current CPI sample.

BLS has found that around four in seven major expenditure groups that are being measured by CPI older households are assigning a larger portion of their total expenditures to some categories that are rising rapidly like the medical care costs.

The Costs Involved

If the Congress approves a change on calculating retirement benefits increases and switches to CPI-E, it would cost several million dollars. The index sample will need to be expanded so that it becomes statistically defensible. BLS will also need to put greater resources into collecting information regarding senior discounts that have the potential to affect the final pricing of various goods and services.

Chained Consumer Price Index for All Urban Consumers

A few members of the Congress are also considering switching to Chained Consumer Price Index for All Urban Consumers (C-CPI-U) from CPI-W. It is believed that (C-CPI-U) will capture consumer expenditure substitutions so as to reflect true cost-of-living changes of the customers. On the BLS website, an example of consumer preferences between pork and beef can be found.

Beef and pork are two separate CPI item categories. If the price of pork increases and the price of beef do not, consumers might switch to beef from pork. The C-CPI-U is designed in such a manner that it accounts for this kind of consumer substitution between different CPI item categories. In this example, the C-CPI-U will increase but not by as much as the index that was based on the fixed purchase patterns.

Thus, the C-CPI-U is proven to increase at a slower rate than the CPI-E or CPI-W over the last decade which would save government’s money by lowering the amount by which retiree benefits increase.

An act known as the CPI-E Act of 2015 was similar to the bill that has been introduced by Congressman Garamendi. It died in a Subcommittee of the House during November 2015.

Conclusion:

Though the efforts made by Congressman Garamendi to change retirement benefit increases are calculated in the future to have got some attention, no one can say for sure whether the proposed changes will be approved by the Congress this year, or ever. If the changes are approved, the process of calculating cost of living adjustments will change, and most retired people would need the advice of a federal retirement guide for managing their finances well.

Firing Federal Employees Becomes Easy

Most federal employees seek to know the best date to retire so that they can do the financial planning well. But it seems that they will need to plan ahead as firing federal employees has become easy thanks to a newly approved legislation. The employees of the Veterans Affairs Department are the ones being more affected by this change. Democrats tried very hard to halt this bill which they think is unfairly targeting the rank-and-file employees.

firing federal employeesit seems that they will need to plan ahead as firing federal employees has become easy thanks to a newly approved legislation.

Legislation that Makes Firing Federal Employees Easy

The legislation that makes firing federal employees easy was approved by a House committee. It will now hasten the disciplinary process going on at the Veterans Affairs Department. This legislation was pushed back by the Democrats, and they opined that this legislation is unfairly targeting all the rank-and-file employees.

Republicans vs. Democrats

This legislation is the latest effort made by Republicans to make firing federal employees easy and boost the accountability at the VA. The Republicans have tried to expedite the firings and suspensions at the department since an initial reform effort initiated in the year 2014 ran into legal trouble. Democrats, on the other hand, insisted that they were for getting rid of problem employees in VA, but they thought that the Republicans led plan would not address the root of the issue in a proper manner.

Hurting a Few Employees

The author of VA Accountability First Act and the Chairman of the House Veterans Affairs Committee, Rep. Phil Roe, R-Tenn. started off the markup by addressing the expected criticisms. He stated that the measure was not an attack on the rights of the workers, but it was an effort to grant the request made by VA Secretary David Shulkin. Shulkin had sought to dismiss employees when he comes across very few bad employees.

Roe stated that he did not agree with the argument that the bill would impact recruiting and retention in a negative manner as bad employees usually hurt the morale of the rest of the workforce. While noting a common refrain from detractors of firing reform, Roe mentioned that the measure would not hurt a large number of veterans who work at the department.

Roe is a veteran himself, and he opined that veterans don’t agree to serve in any role because they put special employee protections ahead of a mission as the mission always comes first.

Eliminating the Grievance Process

The main sticking point of the legislation that makes firing federal employees easy was the elimination of the union grievance process that is available to all the represented employees as a way to appeal adverse personnel actions. Roe highlighted that the unions represent 76 percent of the VA workforce and his intention was to reform the process for more than just a quarter of employees of the department. Roe added that leaving the grievance process open would create a gigantic loophole for increased accountability. He also pointed out that the completion of the grievance process takes up to 350 days to complete.

Another ranking member of the committee, Rep. Tim Walz, D-Minn, stated that VA must follow the laws that were put in place after collective bargaining agreements.

The Amendments

Democrats had proposed some amendments to reform the legislation that makes firing federal employees easy, but all those efforts failed. Walz has cautioned that the latest accountability legislation would fail to pass in the Senate. He even offered a compromise bill that was championed in the Senate Veterans Affairs Committee last year and had got bipartisan support. Among the other amendments that failed, there was a plan from Rep. Mark Takano, D-Calif. He proposed allowing the VA Secretary to suspend troublesome employees without pay while an investigation into alleged misconduct was done.

Scandals of the Past

Roe did not hesitate in pointing out that anyone who was standing against this bill that makes firing federal employees easy was supporting an antiquated system that was mainly responsible for the scandals that occurred in the past.

The Expedited Removal Authority

Roe’s bill would give expedited removal authority to the VA secretary which means that any employee fired by the Secretary would be out of the job and off the rolls of the department that day. Any employee who is facing removal or suspension of at least 14 days or a demotion would get a notice of 10 days, and the secretary would have five days to rebut any response an employee comes up with during that time. Those employees would maintain appeal rights to the U.S. Court of Federal Claims and the Merit Systems Protection Board.

Reduced Pensions

Apart from making firing federal employees easier, this bill would also allow VA to reduce the pensions of employees if the employee is convicted of a felony that affected the job and it will also let VA recoup bonuses and relocation expenses in a few cases. Federal employees facing these kinds of penalties would also be entitled to an appeal so that they can retire when it is the best date to retire for them, and they can meet their financial planning goals rather than being chucked out unceremoniously.

1 Billion USD Paid to People without Social Security Numbers

A new audit has highlighted that $1 billion was paid to people without social security numbers. This is amongst the most shocking social security news that has come out in a long time. Lack of proper records is said to be the key reason behind the mistake, and the Social Security Administration (SSA) is seen defending itself post the release of this report.

social security numbers $1Billion given away to recipients without social security numbers

Report Says 1 Billion USD Paid to People without Social Security Numbers

The report which states $1 Billion was given to people without social security numbers was compiled during a fresh audit. The inspector general of the agency found many errors in the documentation done by the government for representative payees. The representative payees are also known as individuals who get disability or retirement payments on behalf of a person who is not able to manage the benefits themselves.

The key finding of the audit was that there were thousands of cases where there were no social security numbers present on file. This report was released just a few days back. It states that the social security administration paid $1 billion to about 22,000 representative payees without an SSN. It also highlighted that SSA has failed to follow its policy to retain the paper application.

Future Trend

The Inspector General also stated that if the SSA fails to take a corrective action in this regard, it will continue to pay around $182.5 million worth of benefits annually to the representative payees without any social security numbers or those representatives that lack a paper application regarding their selection.

The Past

In the past, the agency has paid USD 853.1 million in benefits since 2004 to individuals who were terminated as representative payees by the agency. According to the Inspector General, the errors occurred mainly because SSA failed to keep paper applications that supported an individual’s case to receive benefits on other person’s behalf. The agency also failed to update its system in the cases where the status was terminated.

More Data

Further results of the audit state that just 6 percent of representative payees had properly recorded social security numbers in a sample of 100 beneficiaries taken during the audit. It was also revealed that 17 percent of the representatives’ payees in the sample lack a record of any social security numbers as they were noncitizens who were undocumented. It clearly proves that government benefits deserved by American citizens are going to people who are in this country illegally via the current representative payee system, and in fact, that undocumented aliens without SSNs are receiving benefits from the government when acting as representatives for their minor children.

The Response

The social security administration responded to the audit by saying that it moved to a new Electronic Representative Payee System only last year and the transfer of information of representative payee may have resulted in the applications showing as not selected or terminated. It is clear from this statement that the federal government is defending the issuance of benefits to persons and noncitizens without any social security number.

SSA said that representatives play a crucial role in the lives of the beneficiaries. SSA has about 5.7 million representative payees who are managing the annual benefits for about 8 million beneficiaries. When appointing the representative payees, the agency adheres to the guidelines of the Social Security Act.

Specific to the latest audit, the Act permits SSA to appoint an undocumented alien or an applicant who resides outside the United States with no social security numbers in certain circumstances to serve a payee. SSA also mentioned that the Act states that SSA must verify the social security number of a person or the employer identification number while investigating the payee applicant. But the act does not mention that it is mandatory to have social security numbers while serving as a payee.

The agency added that the absence of a social security number is not a criterion that prevents an individual from serving as payee.

Conclusion

It is quite clear that offering social security benefits without social security numbers is a problem that must be addressed but the SSA is taking the matter lightly. It is not accepting that offering $1 billion to people without social security numbers is a shocking social security fact that may shake the trust of people in the system.

 

For more information on Social Security for Federal Employees please visit out content on frequently asked questions about federal retirement or the social security calculator.